Dynamic core-satellite investing using higher order moments: an explicit solution.

The goal of core-satellite investing is to optimally balance the portfolio allocation between a core and satellite investment. This paper provides an explicit solution when the investor's optimality criterion is the third-order and fourth-order expansion of the expected utility function, respectively. Based on a numeric example, we document the sensitivity of the proposed weights to coskewness and cokurtosis components. Finally, we use ETFs to examine the portfolio performance of the coresatellite strategy with higher order moments. We document that integrating the higher order moment in core-satellite investing can improve the financial performance of a portfolio. [ABSTRACT FROM AUTHOR]